China pursuing optimal strategy

By Kuo Chen-hero 郭振鶴 /

Sat, Nov 30, 2013 - Page 8

Theories of competitive strategy refer to something called optimal strategy, which can be offensive or defensive in nature and is adopted by a country or a company when it faces a competitive threat. It would be sufficient to defend one’s position and could also ensure a high return on investment.

An optimal strategy involves the adoption of a raft of policies specifically designed to reflect the particular situation in which that country or company finds itself and to create a position within a certain environment that would be sustainable in the long term.

When it comes to competitive strategy, smaller countries have two choices: product differentiation and market segmentation. Larger countries, on the other hand, have more options, including increasing scale and market share to gain a stronger position in the market.

Clearly, compared with China, Taiwan cannot be considered to be a large country. However, in the past, despite the country’s size, the unique nature of the Taiwan brand and the fact that it has been able to maintain its competitive edge has meant that Taiwan has led the other Asian Tigers in terms of economic growth, and its citizens have enjoyed job security and good standards of living.

Every town, city and county in Taiwan has its own local specialty or service, run as small-scale operations, that attract tens of thousands of tourists every year. Thanks to such operations, built up through the hard work of previous generations, the service industry contributes a full 75 percent of the country’s GDP and accounts for Taiwanese industry’s competitive advantage. Taiwan’s service industry is a major source of domestic consumption.

Domestic consumer expenditure, accounting for 65 percent of Taiwan’s GDP, is a crucial core economic indicator affecting the annual economic growth rate. As such, differentiation and market segmentation in Taiwan’s service industries provide a competitive edge to the Taiwan brand, to the nation, that will enable it to continue to develop in a sustainable way.

Senior government officials in Beijing have their sights set on bringing about political cooperation and political unification through progressive economic cooperation with Taiwan.

China’s size makes the service trade pact the optimal competitiveness strategy and a persuasive approach for slowly and incrementally absorbing Taiwan in a way that the authorities in Taipei will find very difficult to prevent.

This is quite clear from the comments made by two officials in China responsible for the country’s relationship with Taiwan: Association for Relations Across the Taiwan Straits Deputy Chairman Zheng Lizhong (鄭立中) and Chen Xing (陳星), head of China’s Ministry of Commerce’s Department of Taiwan, Hong Kong and Macau Affairs.

Zheng has said that the signing of the proposed cross-strait service trade agreement will not only help Taiwanese businesses transform themselves, but the parts of the agreement concerning the deregulation of the financial markets will also support the further development of these businesses.

Chen has rejected the idea that the agreement will harm small businesses in Taiwan, saying that it will in fact provide more opportunities for businesses with modest amounts of capital to break into the China market.

He added that since China’s service sector has developed relatively late, and currently accounts for only 45 percent of GDP, the agreement will actually make it easier for small and medium-sized businesses in Taiwan to move into China, and given the successful completion future post-Economic Cooperation Framework Agreement talks on commodity trade, China will become Taiwan’s largest trading partner, although Chinese investment in Taiwan will be relatively slow.

From the above it becomes clear what the senior government officials in China are trying to do. Taiwanese businesses will transform and develop, and the retarded development of China’s service industries will initially make it easier for Taiwanese small and medium-sized businesses to make inroads into the China market.

The service trade agreement is essentially, in terms of a plan for eventual unification, China’s optimal strategy. By comparison, senior government officials in Beijing have said little about the impact and influence of the service trade pact on those businesses that choose to remain in Taiwan.

As soon as China’s own service sector begins to take off, the signing of the service trade pact will presumably wipe out the competitive edge and unique quality of Taiwan’s service industries.

In the future, Taiwan’s economic growth rate will come to depend more on China. How will the wise leaders in the government view the signing of the service trade agreement in terms of Taiwan’s competitive strategy? Is the signing of the pact for the sake of China, or is it for the sake of our beautiful country?

Kuo Chen-hero is an adjunct professor in the School of Business at Soochow University.